Personal Income & Spending: Consumer Inversion Continues

February’s personal income and spending is not looking like any major recession cuts are keeping households from buying needed goods, but if the math is right then they are spending money they don’t have.  Personal income came in at -0.2%, in-line with estimates of -0.2%.  Personal spending came in at +0.2% versus expectations of -0.2%.  Sound familiar to the past?

What gets interesting is that the revisions for January show the same trends.  Spending was revised to +1.0% from +0.6%.  Income was revised to +0.2% from +0.4%.    The personal savings rate came in at 4.2% of income in February, down from the 4.4% reported in January.  Another component of disposable income dropped by -0.1% after being up by +1.6% in January.

These may seem fine on the surface.  But the reality is that income is dropping and spending was above expectations.  The good news is that consumers are still buying what they need.  The bad news is that this looks like they are doing it with money outside of their income again.  Combine this with the waves of unemployment and carry it as being a static event for a few months.  You could wind up with another wave of consumer credit issues above what we are already seeing from credit card issuers.

JON C. OGG
March 27, 2009